Infrastructure Preparation and Innovation Facility (RRP PHI: 50288) Project Administration Manual Project Number: 50288-001 Loan Number: LXXXX October 2017 Republic of the Philippines: Infrastructure Preparation and Innovation Facility Contents Page I. PROJECT DESCRIPTION 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 3 II. IMPLEMENTATION PLAN 4 A. Project readiness activities 4 B. Overall Project Implementation Plan 5 III. PROJECT MANAGEMENT ARRANGEMENTS 7 A. Project Implementation Organizations–Roles and Responsibilities 7 B. Key persons involved in implementation 9 C. Project Organization Structure 11 D. Implementation Arrangements 11 IV. COSTS AND FINANCING 12 A. Cost Estimates Preparation and Revisions 12 B. Key Assumptions 12 C. Detailed Cost Estimates by Expenditure Category 13 D. Allocation and Withdrawal of Loan Proceeds 14 E. Cost estimates by Funding Source 15 F. Cost Estimates by Output/ Component 16 G. Detailed Cost Estimates by Year 16 H. Contract Awards and Disbursement S-curve 17 I. Fund Flow Mechanisms 18 V. FINANCIAL MANAGEMENT 18 A. Financial Management Assessment 18 B. Fund Flow/Disbursement Arrangements 25 C. Accounting Policies 26 D. Auditing and Public Disclosure 26 VI. PROCUREMENT AND CONSULTING SERVICES 27 A. Advance Procurement 27 B. Procurement of Goods, Works and Consulting Services 28 C. Procurement Plan 28 D. Consultant's Terms of Reference 32 VII. SAFEGUARDS 32 A. Environmental Safeguards 32 B. Involuntary Resettlement Safeguards 32 C. Indigenous Peoples 32 D. Safeguards support through consultants 32 E. Prohibited Investment 32 VIII. GENDER AND SOCIAL DIMENSIONS 33 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 34 A. Project Design and Monitoring Framework 34 B. Monitoring 36 C. Evaluation 37 D. Reporting 37 E. Stakeholder Communication Strategy 37 X. ANTICORRUPTION POLICY 38 XI. ACCOUNTABILITY MECHANISM 39 XII. RECORD OF PAM CHANGES 39 APPENDIXES 1. Indicative List of Projects to be Prepared Under Project 39 2. Outline Terms of References for Consulting Services 41 3. Template Of Annual/Quarterly Progress Report 88 4. Draft Terms Of Reference Of External Auditor 90 LIST OF TABLES Table 1: Indicative ADB and Government Processing Milestones 4 Table 2: Output-Based Activities and Management Activities 5 Table 3: Agency Roles and Responsibilities 7 Table 4: Financing Plan 12 Table 5: Cost Estimates by Expenditure Category 13 Table 6: Allocation and Withdrawal of Loan Proceeds 14 Table 7: Cost Estimates by Fund Source 15 Table 8: Cost estimates by Output/Component 16 Table 9:Cost Estimates by Year 16 Table 10: Estimated quarterly and yearly contract awards and loan disbursements 17 Table 11: Financial Management and Internal Control Risk Assessment 20 Table 12: Financial Management Action Plan 24 Table 13: Cost Estimates by Budget User 25 Table 14: Procurement Plan 28 LIST OF FIGURES: Figure 1: Contract awards and loan disbursement S curve 17 Figure 2: General Fund Flow Diagram 18 Project Administration Manual’s Purpose and Process 1. The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government of Philippines (Government) and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. 2. The Department of Finance (DOF) as the executing agency; the Department of Public Works and Highways (DPWH), and the Department of Transportation (DOTr) as implementing agencies, are wholly responsible for the implementation of this ADB-financed project, as agreed jointly between the Government and ADB, and in accordance with Government and ADB’s policies and procedures. ADB staff is responsible to support implementation including compliance by the DOF, DPWH and DOTr with their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures. 3. At loan negotiations, the borrower and ADB shall agree to the PAM and ensure consistency with the loan agreement. Such agreement shall be reflected in the minutes of the loan negotiations. In the event of any discrepancy or contradiction between the PAM and the loan agreement, the provisions of the loan agreement shall prevail. 4. After ADB Board approval of the project's report and recommendations of the President (RRP), changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB’s administrative procedures (including the Project Administration Instructions of ADB) and upon such approval they will be subsequently incorporated in the PAM. ABBREVIATIONS ADB – Asian Development Bank DOF – Department of Finance DOTr – Department of Transportation DPWH – Department of Public Works and Highways EIRR – economic internal rate of return FIRR – financial internal rate of return GDP – gross domestic product ICC – Investment Coordination Committee ISA – International Standards on Auditing ISAE – International Standards on Assurance Engagements ISSAI International Standards of Supreme Audit Institutions NEDA – National Economic Development Authority ODA – overseas development assistance PIB – public information booklet SOE – statement of expenditures TA – technical assistance 1 I. PROJECT DESCRIPTION A. Rationale 1. Accelerating Infrastructure Investment. The current administration under the Ten-Point Socioeconomic Agenda1 aims to ramp up public infrastructure projects such as national roads, expressways, bridges, airports, subways, and railways. Public spending on infrastructure is expected to reach 7% of gross domestic product (gross domestic product) by 2022—or approximately $14.5 billion annually, from the current level of 3.4% of gross domestic product in 2016. To materialize the goals of infrastructure investment, the government requested the Project from the Asian Development Bank (ADB) to help the two key agencies responsible for national public infrastructure projects, namely the Department of Public Works and Highways (DPWH) and the Department of Transportation (DOTr), conduct pre-investment activities which will in turn help accelerate the Investment Coordination Committee (ICC) review and approval process and ensure timely, high-quality procurement and implementation.2 2. Core Development Problem. Infrastructure enables access to work, markets, education, healthcare, housing, and other services that allow people to uplift their standards of living. Lack of or underdeveloped infrastructure has been identified as one of the most significant constraints to the Philippines’ growth prospects. While the country has improved consistently in the Global Competitiveness Ranking from 65th in 2012–2013 to 57th in 2016–2017, its overall infrastructure significantly lacks behind other emerging Southeast Asian countries. In 2016–2017, the Philippines was ranked 112th out of 138 countries in terms of infrastructure quality, well below other Southeast Asian countries, such as Malaysia (19th), Thailand (72nd), and Indonesia (80th). The impacts of underdeveloped public infrastructure are high costs of doing business, which, in turn, undermine business potential and economic opportunities, especially in rapidly growing urban areas. Significant catch-up in infrastructure development is needed in the Philippines to realize the country’s potential and remain competitive. 3. Infrastructure Development Constraints. Underdeveloped infrastructure is attributed to five factors: (i) inadequate infrastructure investment; (ii) lack of inter-agency coordination; (iii) inadequate or incomplete infrastructure plans and implementation programs; (iv) limited access to international expertise and constrained technical and management know-how in project preparation and implementation; and (v) inadequate sustainability of infrastructure. Coordination between the two main agencies responsible for infrastructure (DPWH and DOTr) and other key agencies is limited, which constrains project preparation and implementation. Infrastructure projects are often not delivered as planned due to either dated project formulation or dated project implementation, or both. Delays in safeguard compliance, procurement, and land acquisition as well as inadequate project management systems delay timely project delivery. The lack of project management and monitoring systems also implies that infrastructure is often delayed, inefficiently operated, and inadequately maintained, thereby undermining sustainability of project benefits. 4. Tackling constraints to infrastructure planning, design, and implementation. To enhance national capacity, additional access to international sources of innovation, expertise, advice, and best practices would enable DPWH and DOTr to incorporate expertise and innovation in project formulation and implementation. An ADB-funded Project and its international procurement systems would facilitate DPWH and DOTr access to required specific technologies, international expertise, and innovation, complementing and building on nationally available 1 The Ten-Point Socioeconomic Agenda, as presented during the 'Sulong Hakbang Tungo sa Kaunlaran' consultative workshop held on 20–21 June 2016. 2 The Government’s official request for ADB’s assistance was made on 8 February 2017. 2 expertise. The Project will help DPWH and DOTr to more effectively execute and implement public infrastructure projects by accelerating